Latest from Gut Feelings...

Subscribe to the RSS Feed

How to Buy a Business: Swimming With Sharks and Other Useful Skills

Posted on 26 June 2010 by tracy (4)

OK, so you’re 50+ years old and you’re out of a job. A corporate gig either isn’t really turning you on or isn’t proving easy to find. And, just to make things really interesting, your savings aren’t going to get you through retirement in the fashion to which you’d like to stay accustomed. One way out of this is to buy a business. It’s not easy, often not glamorous, and you may meet some unsavory and tedious characters along the way, but, if you think strategically and carry out due diligence like your lifestyle depends on it (it does), you can come out on top.

There are two typical ways to go about buying a business. The first is to take a high-level job in a company where the owner is looking for an exit strategy. You become the exit strategy because you go in with the explicit intention of buying out the owner at some point in the future. The second way to buy a business, which I’m going to get into in this blog, is to simply buy an existing one from someone who is ready to cash out today.

Finding Your Dream Date

There are thousands of businesses to buy in every corner of the world. To sort through this mess / ocean of abundance, you’ve got to establish some non-negotiable parameters. My advice? Put these three things at the top of your list:

  • Geographic desirability: Unless you want to move, you need to find a business that is located in your general area – say a 50 mile radius.
  • A purchase price you can afford: More on how to finance a business acquisition below, but for the moment, just know that you’re going to have to find a business that is in your price range.
  • Evidence of strong cash flow: This isn’t the time to fund a risky venture, you want a business that has demonstrated its ability to generate the amount of income that you need to fund your new life through retirement.

Cash Flow is Sexy

As I said above, buying a business is often not glamorous. And, as I said in my last blog, when you’re in a corner you’ve got to lose the attitude about what you’re willing to do, and you’ve got to focus more on actually being financially successful rather than just looking financially successful. I’ll tell you a little secret: cash flow is sexy. It buys you freedom, peace of mind, and some very nice toys. So, are you ready? Here are some businesses that, in my experience, generate very sexy cash.

  • Gas Stations with Convenience Stores
  • Dry Cleaners
  • Bagel Stores
  • Limousine Companies
  • The local bar that’s been in business since before you were born
  • Laundromats

None of these will score you an invite to the Academy Awards, but all of them have the potential to pay the mortgage, put the kids through college, and fund your retirement. And, by the way, this isn’t an exhaustive list by any stretch of the imagination – these are just some examples of what I’ve seen work. You should take a look around and explore what’s out there, get information, talk to people. The point is, don’t limit yourself to businesses based on image – look for the cash flow potential!

Private Investigations and Swimming with Sharks

In your search to buy a business you may very well trip over people who call themselves business brokers. Some are good, many are sleazy, none should be trusted to evaluate the real value of any business you are considering buying. The best use of a business broker is to find businesses that are actively seeking a buyer. Once you’ve got your target business, you need to do your own due diligence. That means analyzing the financials and cash flow potential so you can arrive at the true value of the business. It also means reviewing the legal aspects of the proposed deal. If you have experience in financial and legal analysis, great. If not, hire people who do. If you want help finding skilled professionals whose only interest is your best interest, give me a call at 212-308-5495 or send me an email at thetaxxman@aol.com. I have helped dozens of clients navigate business acquisitions and dispositions, so I can likely either help you directly or put you in touch with other excellent professionals who can.

A few notes on business brokers:

  • You can find them online through Google, but the best option is to find one through a personal referral
  • The typical cost for a business broker’s services is 10% of the cost of the transaction
  • Business brokers typically get paid at closing by the seller

Paying for the Wedding

So, you found your dream date, did your due diligence, and you want to make the commitment. You’re gonna need cash. There are three places you can get it.

  • Your Savings: About 99% of the time I tell my clients (and anyone else who will listen) not to touch their retirement accounts. The situation you’re in – you’re facing an underfunded retirement and time is short – is the exception. You may decide that taking some money out to invest in a business is the right risk to take given your circumstances. But – and this is critical – it should be discussed in detail with appropriate advisors because making a mistake now is not an option.
  • A Bank: The process of getting a business loan is such that you’ll want to kill yourself at some point, but it may be worth it. In addition to straight commercial financing, you may be eligible for a federally subsidized Small Business Loan. SBA loans, which you get through qualified commercial lenders, have some advantages, like up to 90% financing and other underwriting terms that are more flexible than standard commercial loans. You can find out more at the SBA website.
  • Family & Friends: Do you have well-heeled family members and/or friends? Think about going to them for a loan or equity investment. Especially when dealing with family and friends, you should have legal agreements that spell out all the risks, responsibilities, and expectations. Otherwise future holidays could take on a nightmarish quality.

No doubt, buying a business when you are 50+, unemployed, and have limited financial resources is a risk. You may decide that it’s not for you. But it is an option. It’s also an opportunity to bring all of the intelligence and business acumen that has gotten you this far in life to the task of thinking through an out-of-the-box solution to your financial quandary. If there’s anything I can do to help, don’t hesitate to call me. In addition to helping clients acquire businesses, I have personally invested in several myself with good results.

Look for my next blog sometime the week of July 12th – I have some travel on the schedule next couple of weeks, but already have next blog topics in mind related to spending (yes, I have yet more to say!) and preparing college grads to enter the workforce in a shaky economy.

Bookmark and Share

4 Responses to “How to Buy a Business: Swimming With Sharks and Other Useful Skills”

  1. You forgot to mention that the REAL way to make a killing is to buy a small travel publishing company.

  2. Michael says:

    Interesting post. It has me thinking…
    How much are these type of businesses to purchase and what is the range of income from them?


Leave a Reply

Anti-Spam Quiz:

Side effects medicine Canadian pharmacy \?. drugs price comparison and get a discount. We guarantee low prices and high quality of all medicines canada pharmacy ^,: buy viagra . After ordering you will be contacted by our managers and agree on the delivery details.